NEWS

Companies have raised billions of US-Dollars and Euros in the last months by selling blockchain-based Tokens (ICOs). The next generation ICOs, so-called STOs (Security Token Offerings), have a huge potential for companies of all sizes. They combine the advantages of tokens (security, fungibility, simplicity, programmability) with legal rights (dividend rights, shares, etc.). Such rights are, thus, “tokenized”.

It is well-known that many of the ICOs are scam, which is why such means of fund-raising have difficulties in reaching companies outside the crypto sector. There are currently two technical solutions to this issue:

The first one is the idea of the “reversible ICO” (RICO) which has been introduced by Fabian Vogelsteller, the creator of the ERC20 contract standard, and discussed on the recent devcon conference. A RICO allows investors to redeem their investments in case the funded project did not deliver successfully.

Quite similar to the concept of the RICO is the proposition of Vitalik Buterin, the “Decentralized Autonomous ICO” (DAICO). DAICOs allow for a slow disbursement or even a reimbursement of funds. This method also protects the funds of the investors and can help making the ICOs and STOs more “serious”.

We propose a further solution which every ICO/STO should consider implementing. And honestly, there is no reason not to do so. Having in mind that, even if smart contracts are used, every ICO and STO requires a Token Sale Agreement (also known as SAFT or SAFTE), a legal contract. Both parties of the agreement have to comply with it, meaning that every scam, every misuse of funds, every software bug, is a breach of such an agreement. In case of a breach, the investor might sue the emitter, but a state court might have difficulties in ruling over a case which is such innovative and highly technical in a reasonable time.

We therefore propose that every token sale agreement contains a dispute resolution or even arbitration clause. Such a clause enables the parties to bring the case to a private court, an arbitral tribunal, which may rule over the case with legally binding effect. The advantage is not only speed, but foremost the fact that the arbitrators may be chosen by the parties. This means that the parties may chose arbitrators which are experts in the area of ICOs and STOs, be it with a technical or with a legal background.

Our expert database contains a few propositions.

We will shortly publish a piece of software code which can be included in a smart contract and which supports – technically – the parties bringing a case to an arbitral tribunal. This solution combines, therefore, a RICO/DAICO with a legally binding dispute resolution mechanism. Stay tuned.

Disputes in IT agreements are not unusual. Be it a software development agreement, be it a cloud agreement, be it a licensing agreement, one party sometimes believes that the performance of the other party does not comply with what has been agreed upon. The reason why this happens in IT agreements more often than in other agreements is a very simple rule which every software developer knows:

No software is error-free.

Further considering that

Every IT agreement is related to software.

because software is the basis for every cloud, software development, software licensing, etc. agreement, one can conclude that

No performance of an IT agreement is error-free.

We believe in this simple rule, and this rule has been confirmed by hundreds and hundreds of IT relationships our members have gotten in touch with. The motivation of the Blockchain Arbitration Forum is to offer parties of IT agreements with simple means to solve such disputes in a professional way.

Today, we successfully founded the Blockchain Arbitration Forum BAF. The legal entity is an association, or Verein, as it is called in Germany.

On our website, you find our bylaws, and more information about the forum. We encourage all experts in the field of Alternative Dispute Resolution (ADR ) to become a member and/or an arbitrator by registering online.

Business relationships in the context of IT always had and still have one big challenge: Once a dispute has arisen between the parties, they will not only argue about legal questions, but also about technical ones. For example, a claim for a remuneration often depends on whether the software contains a material bug or not. Settling this issue requires the parties to find a common understanding of the terms “bug” and “material”. This may prove extremely difficult in practice as it requires both legal and technical expertise.
If the parties attempt to settle the dispute in court, a final resolution might take years amid extensive expert examinations and increasing costs. It is thus not surprising that the parties do everything to avoid court proceedings and may even accept monetary concessions, be they reasonable or not.

In light of this situation, a group of tech and law experts founded the Blockchain Arbitration Forum. The purpose of the Blockchain Arbitration Forum is to spread the idea of Alternative Dispute Resolution (ADR) in the tech community, with a focus not only on arbitration, but also on mediation, expert
determination and other dispute resolution procedures. The Blockchain Arbitration Forum will host events, provide trainings, establish and support working groups on special questions, and identify and
propose suitable dispute resolution clauses.

Additionally, the Blockchain Arbitration Forum will maintain a database of certain of its member with particular expertise who may serve as neutrals in different dispute resolution procedures, e.g. as arbitrators. The database is intended to help parties in a dispute to find a suitable neutral to support them
in resolving their dispute.

The potential importance of ADR procedures, in particular arbitration and expert determination, for the tech community follows from essential features, which court proceedings to not provide: They can be specifically tailored to the specific needs of the parties and the particular dispute. In particular, the parties are generally free to amend procedural rules to their needs and freely elect an arbitrator or expert with the necessary expertise to decide their dispute. Whilst expert determination provides for a fast and cheap
process to settle specific disputes on facts, arbitration proceedings result in binding awards that can be enforced internationally and more easily than court judgements. Especially companies and individuals in the tech industry should therefore closely consider appropriate arbitration or other dispute resolution
clauses.

The Blockchain Arbitration Forum is looking forward to new members, interesting discussions and agrowing interest in ADR in the tech industry.